Health cost hyperinflation roars on

Update on health cost trends mid-2011:

The beast of hyperinflation continues to roar. A spring survey of 200 employers in the greater Milwaukee region showed average cost increases of 8% to 10%.

HC Trends reported in its August newsletter that the 2011 results were an improvement over the 2010 increase of 11% to 13%. That, of course, is true, but both numbers are outrageous.

Therefore, it should come as no surprise that 5% of the respondents, all with fewer than 20 employees, dropped health care over the last year. They reached the conclusion that they could no longer afford to offer coverage, even it meant losing key employees to companies that offer coverage.

While the average family plan ran between $14,000 and $15,000, more and more plans are achieving “Cadillac” level of more than $25,000 for family coverage. Seven percent of employers are now at that stratospheric level.

The obvious point is that there is a connection between high prices and erosion of access. The other obvious point is that the employers dumping coverage are defaulting to government programs.

That partially explains the explosion in the ranks of people covered by Medicaid or its state counterpart, like BadgerCare in Wisconsin.

Meanwhile, large employers in the private sector are devising management systems that rein in the beast. Two-thirds offer consumer-driven health plans, with incentives and disincentives for appropriate utilization and health management, and the most effective plans are averaging less than 5% increases.

They are proving that the health care cost trajectory can be bent south.

Meanwhile, some public payers are getting the message. They are usually at more than $20,000 per employee.

Connie Goss, who manages risk and health care for Chippewa County in Wisconsin, has converted part of her employee base to a consumer-driven plan. She is running $9800 per employee for that group and $14,000 overall for her total employee base.

“Our utilization is going down,” she said. “It has proven to be very successful.”

The movement is growing among Wisconsin counties. “We’re not voices in the wilderness,” said Goss, who relishes good management and improving health at the same time. Other counties that have moved to consumer incentives include Manitowoc, Calumet, Marathon, Washington and Oconto.

They didn’t need the recently passed elimination of collective bargaining for Wisconsin public unions to start managing intelligently, but the new law does eliminate excuses for not making cost cutting changes.

For the same benefits and network, a consumer-driven plan usually cuts costs by 20% to 25%. The savings can grow to 30% over a four-year period.

Those kinds of savings could eliminate government deficits at all levels, while health improves.

All this good stuff is happening at the ground level. Meanwhile, at the federal level, there is little help on costs. In fact, just the opposite is occurring. The Obama Administration just added another mandate for health plans – required coverage without cost sharing for birth control, well-woman visits, counseling for women and support for breastfeeding. That will raise costs for plans that don’t already cover those services.

Another ObamaCare foundation is “accountable health care organizations” (ACOs), an inscrutable part of the law. In Milwaukee, the large health care providers are using that approach to develop plans for direct contracts with large employers.

Bit it’s hard to see how the large providers are going to bring costs and prices down with a different form of contracting. Quality improvement is supposed to be part of the deal, but they already have such quality initiatives. What’s different?

The long and short of all these pushes and pulls on the health care systems is that there is still plenty of room for real reform.

It’s more about management science than political science.


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